Written by: Nick Bregozzo

There are four major steps Australians can take to achieve financial independence. These steps are:

    1. Gaining control of your debts


    1. Developing and following a budget


    1. Effectively managing your debt, and


    1. Planning for your financial future.

This article describes these four steps, each of which is an integral part of the personal financial management process.

Personal financial independence is a goal of many Australians. With financial independence come security, reduced stress, an improved lifestyle and confidence in the future. For many, achievement of this goal seems out of reach but with some work, discipline and planning it is possible to make progress towards a more secure financial future.

Debt consolidation is one way to come to grips with the problems that come from having a multitude of debts that are both difficult to track and expensive. Many Australians do not know what all of their debt obligations are, what they are costing them in interest expense or even what their monthly outgoings are to service those debts. Each bill is paid, hopefully by its due date, just in time for the next bill to arrive. If the payments are not made on time, the problem may be compounded by the imposition of late fees and even higher interest rates.

Some of this debt may be for car loans or some other large ticket purchase. Other debts may be balances on store cards for major purchases where a free financing period has expired and high interest rates are now charged. Many debts may be credit card balances that are difficult to pay off because of their high interest rates. It is not surprising that many Australians seek debt help.

A debt consolidation loan provides debt help by making it possible to pay off these balances and combine them into a single fixed weekly, fortnightly or monthly payment that is due at the same time each month. This greatly simplifies the challenge of managing debt, as there are far fewer debts to track and service. Since a debt consolidation loan replaces numerous debts such as credit cards, store cards and other loans that often carry higher interest rates and extends their maturity, the monthly payment will typically be lower.

Developing and Following a Personal Budget

A second step to achieving financial independence is to develop and follow a personal financial budget. The benefits of debt consolidation will be lost if the lower monthly debt payments encourage a return to the same financial habits that caused the debt accumulation in the first place. The budget needs to be developed to monitor progress and impose some discipline on future spending.

Development of a personal budget is not difficult. It basically involves determining each of your expense items and their monthly cost. The budget can be outlined on paper but a more convenient approach is to use one of the popular spread sheets. The budget will include all known expenses, both fixed and discretionary.

Fixed expenses include utilities, insurance, mortgage or rent payments, motor vehicle and other monthly expenses. Discretionary expenses include entertainment, restaurant meals and other expenses that do not have to be incurred every month. Some discretionary expenses can be deferred or avoided.

Effectively Managing Debt

The budget will indicate if current after-tax income is covering all of the monthly expenses or debt is being incurred to maintain the current lifestyle. Some Australians refinance their debt or get a debt consolidation loan, pay off their credit card and other personal loan balances and then go back to running their cards up to the limit. This will result in accumulating even more debt and possibly requiring debt help in the future. It is a certain detour from the goal of achieving financial independence. If you obtain a debt consolidation loan, resolve to avoid this temptation. It is better to keep perhaps one card with a limit you are comfortable with and consider closing or reducing the limits on the other accounts. Instead of a credit card, use a debit card. That way, you will not spend more money than you have in your bank account.

Planning for the Future

The fourth step to financial independence is to develop a plan for your financial future. Many Australians believe financial plans are for the affluent, but a professional financial planner can provide debt help and walk you through the process of getting the most out of your financial resources, discuss your future goals and find ways to help you to develop a road map for your financial future.

Financial Progress Requires Commitment

Australians can make financial progress, but this requires determination and a personal commitment to achieving this goal. Debt consolidation can provide debt help but should be supported by developing and following a budget, a willingness to live within your means, incurring only necessary future debt and formulating future goals in a financial plan.

This article is for educational purposes only and is not financial advice. Consult your financial adviser or other professional before making a decision about any financial transaction